Some 13.9 million taxpayers will be getting a sweetener from Uncle Sam: interest paid on delayed tax refunds.
Filers who submitted their 2019 income tax return by this year’s July 15 deadline and received a refund after April 15 – the original due date – are eligible for interest paid on their tax refund.
You might want to avoid making big plans for the extra cash. The payment averages out to about $18.
The average tax refund issued this year was $2,741, as of July 24, according to the IRS.
Nevertheless, the rate Uncle Sam credited beats just about every savings account. The federal government paid 5% interest annually, compounded daily, for the second quarter ending on June 30.
The interest rate for the third quarter, ending Sept. 30, is 3%.
In comparison, top high-yielding savings accounts earn about 1% in interest, according to Bankrate.com.
The interest is a sweetener for some individuals who have been waiting months for a tax refund — because they either filed paper returns or required additional verification with the IRS — and have been stymied by the agency’s gradual return to operations amid the coronavirus outbreak.
Watch out for taxes
Most of these interest payments will be issued separately from the refund, according to the IRS. If your refund was issued to you via direct deposit, that’s how you’ll get your interest payment.
About 12 million of these payments will be made via direct deposit, while the rest will be issued a check.
Be aware that the interest will be subject to taxes when you file next year.
Those who received at least $10 in interest from the IRS should watch out for Form 1099-INT from Uncle Sam next January.
Save this document, as you’ll need it to file your 2020 taxes.